Yes but the statement was that "in options if you are making money someone else is losing it" and this is clearly wrong. Options market makers seek to remain delta neutral and limit their exposure to price fluctuations of the underlying instrument. Viewing an options trade as someone selling a call or put and another person buying it is a very simplistic view and not how most options are traded in the real world.
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For the Wallstreet haters.
- Thread starter KINGOFSHORTS
- Start date
Quote from Matt8200:
Yes but the statement was that "in options if you are making money someone else is losing it" and this is clearly wrong. Options market makers seek to remain delta neutral and limit their exposure to price fluctuations of the underlying instrument. Viewing an options trade as someone selling a call or put and another person buying it is a very simplistic view and not how most options are traded in the real world.
What statement? Yours? Regardless, it remains true. That "simplistic view" is zero-sum, period. You can talk out of your ass all you like, but you can't spin this to win some moronic argument.
WTF do market-makers have to do with zero-sum? You're stuck on "trade" as a euphemism for portfolio or specific outlook on vol or price. That's fine and dandy, but has nothing remotely to do with the topic of zero-sum.
Zero-sum relates to two-sides of one market; whether it be a single call or put, or a butterfly (for example).
Volatility itself is NOT zero-sum, but that's for another day. It's what differentiates volatility from premium.
Conceptually, "zero-sum" serves no purpose for the options-trader. It simply means that nothing is added or taken from the market; it's purely distributional. You're concerned that it somehow limits your potential, when in fact it's a a silly abstraction.
Reading is fundamental. Fifth post in this thread:
Market makers have everything to do with discussion if you buy or sell an option, most likely you are buying or selling it from a market maker. Market makers hedge their positions with other options and the underlying. You can make money on an option you buy from a market maker while his net position does not lose money.
Quote from Free Thinker:
come on. you cant be that "dumb". in options if you are making money someone else is losing it.
Market makers have everything to do with discussion if you buy or sell an option, most likely you are buying or selling it from a market maker. Market makers hedge their positions with other options and the underlying. You can make money on an option you buy from a market maker while his net position does not lose money.
While you are at it, you should probably go argue with the CBOE:
http://www.cboe.com/Advisors/knowledge/myth7.aspx
Myth #7: Options are a zero-sum game: in order to make money, the trader on the floor who bought or sold an option has to lose for me to make money.
Fact: Very often when investors purchase options, they do so from a professional option trader (a market maker) who thereby becomes the seller of the option, and vice versa when an investors sell options. It stands to reason that if the buyer of the option (i.e. the investor) is to make money, the seller of this same option (i.e. the market maker) must lose a corresponding amount. It appears as though public investors are in competition with the pros, and would therefore make no sense to argue with experienced, savvy market makers. In fact, the public and market makers are not in competition with one another. The investor who purchases an option usually does so because he or she has an opinion about direction: Call buyers are bullish, put buyers are bearish. Investors purposefully establish positions with a directional bias. When market makers sell or purchase options, it is usually because a public customer wants to buy or sell an option; market makers may have no opinion about the probable direction of a stock. What do they do? In the best of all possible worlds, a market maker who sold an option at 2 would try to buy it back at 1-7/8, make a small profit and have no market exposure. In most real-world cases, a market maker who sells an option may not be able to buy it back quickly at a profit. What happens then, wait and hope the stock goes in the right direction? For most market makers a wait and hope strategy would be a recipe for disaster. Instead, they will hedge their positions, either by buying or selling a different option, or many times by buying or selling the underlying stock or security. It turns out that investors and market makers are not competing against one another: investors are trading a directional opinion, while market makers are hedging their positions and trying to lock in small profits due to small price fluctuations in a series of options and the underlying security.
http://www.cboe.com/Advisors/knowledge/myth7.aspx
Quote from Matt8200:
While you are at it, you should probably go argue with the CBOE:
http://www.cboe.com/Advisors/knowledge/myth7.aspx
You're again confusing "making money" with zero-sum. I can't fix stupid. Bye bye.
Quote from atticus:
You're again confusing "making money" with zero-sum. I can't fix stupid. Bye bye.
First of all I was not the one who made the original claim about "making money", read the tread. Second, stupidity is consider the options markets as a closed system without including the underlying from which they are derived. Options are zero-sum only when the options market alone is viewed as a closed system. This is not how options transactions work in majority of real world trades.
Quote from numbnut8200:
This is not how options transactions work in majority of real world trades.
Ask yourself if in the Universe of listed *options trading* a net profit of loss is generated in the *open interest of all options traded*. If you can provide proof of a positive-integer result then you will have proven me wrong on the topic of zero-sum.
Majority, real-World. The qualifiers you offer make no difference.
My arguments are:
1. When someone makes money on an option trade someone else does not have to be losing money.
2. Viewing the options market as a closed system is stupid.
I never claimed that the options market when viewed as a closed system isn't zero-sum. Just that it should never be viewed as a closed system.
1. When someone makes money on an option trade someone else does not have to be losing money.
2. Viewing the options market as a closed system is stupid.
I never claimed that the options market when viewed as a closed system isn't zero-sum. Just that it should never be viewed as a closed system.
Quote from Matt8200:
My arguments are:
1. When someone makes money on an option trade someone else does not have to be losing money.
2. Viewing the options market as a closed system is stupid.
I never claimed that the options market when viewed as a closed system isn't zero-sum. Just that it should never be viewed as a closed system.
You're an idiot.